Overruling its 1982 decision in Kouba v. Allstate Ins. Co., the Ninth Circuit sitting en banc held that an employee’s prior salary does not constitute a “factor other than sex” upon which a wage differential may be based under the Equal Pay Act’s “catchall” exception set forth in 29 U.S.C. § 206(d)(1). This was true regardless of whether past salary was considered alone or in conjunction with other factors. The appeals court explained, based on the history and text of the EPA, that “any other factor other than sex” is limited to legitimate, job-related factors such as a prospective employee’s experience, education, or ability. Consequently, a county employer that relied on prior salary to set a female employee’s starting salary failed to set forth an affirmative defense, and the denial of its motion for summary judgment against the employee’s EPA claim was affirmed. There were three concurring opinions (Rizo v. Yovino, April 9, 2018, Reinhardt, S.).

A quotable start. Eloquent from the start, the opinion authored by Judge Reinhardt before his death asserts that while the EPA has prohibited sex-based wage discrimination for over 50 years, “[s]alaries speak louder than words” and the “gender pay gap continues to be an embarrassing reality of our economy.” Against this backdrop the court provides a roadmap for the analysis to follow: “The Equal Pay Act stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex. The question before us is also simple: can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history, and purpose of the Equal Pay Act, the answer is clear: No.”

Background. When the county hired the employee in 2009 as a math consultant, it set her starting salary using its 12-level salary schedule. Each level had progressive steps within it and new math consultants started at Level 1, which had 10 steps, with pay ranging from $62,133 at Step 1 to $81,461 at Step 10. To determine which step within Level 1, the county chose the step corresponding to the employee’s most recent prior salary plus 5 percent. The employee in this case had been receiving less than the county’s Level 1, Step 1, so the county set her at $62,133, plus a $600 stipend for her Master’s degree. When she learned the other math consultants (all male) were paid more than she was, she filed suit under the EPA, Title VII, and state law.

Prior proceedings. The county moved for summary judgment, arguing her salary was based on “any other factor other than sex,” namely prior salary. Denying the motion, the court held that under the EPA, prior salary alone can never qualify as a factor other than sex because there was too much risk that would “perpetuate a discriminatory wage disparity between men and women.”

Recognizing its decision might conflict with the Ninth Circuit’s decision in Kouba, the court certified the case for interlocutory appeal. Vacating this decision, a Ninth Circuit panel held that prior salary can be a factor other than sex if it effectuated a business policy and was used reasonably. The panel directed the lower court on remand to consider the county’s business reasons for its salary schedule: the policy is objective; it encourages employees to leave other jobs by giving a 5% raise; it prevents favoritism and ensures consistency; and it’s a judicious use of taxpayer money. The appeals court subsequently granted rehearing en banc to clarify the law.

Strictly liable for sex-based pay disparity absent EPA exception. Reviewing de novo, the en banc court affirmed denial of summary judgment. It noted the EPA “creates a type of strict liability” for employers that pay men and women different wages for the same work: once a plaintiff demonstrates a wage disparity, she need not prove discriminatory intent. But an employer may assert as a defense one of the EPA’s four exceptions, showing the pay disparity is based on: (1) a seniority system; (2) a merit system; (3) a system measuring earnings by quantity or quality of production; or (4) a differential based on “any other factor other than sex.”

Must be legitimate, “job-related” factor. Here, the county did not dispute that the employee had a prima facie case or that the first three exceptions did not apply, but argued that the fourth “catchall” exception for “any other factor other than sex” includes an employee’s prior salary. The en banc court disagreed: “We conclude, unhesitatingly, that ‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance. It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities—disparities that Congress declared are not only related to sex but caused by sex.”

History and text of EPA. In reaching this conclusion, the appeals court found support in the history and text of the EPA. It noted, for example, that legislative comments demonstrated the bill was meant to be a proactive measure designed to “put an end to historical wage discrimination against women.” And Congress could not have intended the catchall exception to justify basing starting salaries on prior salaries given that the Act was passed at a time when an employee’s prior pay reflected a discriminatory market.

As for the text of the Act, there were three specific exceptions and one catchall at the end of the list. Relying on statutory principles of interpretation, the catchall had to be considered in its context and ascribed a meaning that was consistent with the accompanying words. Because all three specific exceptions related to job qualifications, performance, or experience, it followed that the general exception should also be limited to legitimate, “job-related” reasons, said the court.

Prior salary is not a “factor other than sex.” Against this backdrop, the court held that “[p]rior salary does not fit within the catchall exception because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality.” The court further explained that while prior salary might bear a “rough relationship” to legitimate factors like education or ability, the relationship is attenuated and the use of prior salary “may well operate to perpetuate the wage disparities prohibited under the Act.”

The majority opinion made a point of stating that the rule that prior salary is an impermissible basis for paying unequal wages is the same regardless of whether prior salary is considered alone or along with other factors. Because its 1982 decision in Kouba was inconsistent with the rule announced in this opinion, the appeals court expressly overruled it.

Concurrences. Concurring, Judge McKeown, joined by Judge Murguia, agreed with most of the majority opinion, particularly its observation that past salary can reflect historical sex discrimination. But she believed the majority went too far in holding that any consideration of prior pay is impermissible, even when assessed with other job-related factors. Also concurring, Judge Callahan, joined by Judge Tallman, wrote that in holding that prior salary can never be considered, the majority failed to follow Supreme Court precedent, unnecessarily ignored the realities of business, and in doing so, might hinder rather than promote equal pay for equal work. Concurring in the judgment, Judge Watford wrote that in his view, past pay can be a “factor other than sex,” but only if an employee’s past pay is not itself a reflection of sex discrimination.

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